COVID-19 Pandemic To Permanently Impact Global Economic Activity: Moody’s

In a recent global macroeconomic report, Moody's Investors Service said that the ongoing spread of the deadly coronavirus, that has infected over 400 people in India, will result in a permanent hit to global economic activity this year.

According to the report, a sharp contraction of the global economy, at least in the second quarter, appears imminent and unpredictability will remain for the coming next few months over how long will it take for the pandemic to completely cease and also in terms if how businesses will cope with the resulting financial losses.

It also said that the short-term economic costs because of the COVID-19 outbreak are more probable to be steep across the globe, while the long-term results will be dependent not only on the depth and duration of the hit to economic output, but also on if it will result in lasting damage to balance sheets of households and businesses.

While, it is expected that the resulting loss from the pandemic, that has so far infected over 3,40,000 worldwide, will be extensive, according to Moody’s Investors Service, strong and targeted policy measures could limit the economic damage to household finances and the balance sheets of the non-financial sector.

The reported added that policy measures aiming to prevent or mitigate job losses and business failures will likely yield superior long-term outcomes than traditional stimulus measures. A swift response time will minimise the damage.

COVID-19 may disrupt many sectors such as transportation sector, the energy industry, hospitality, healthcare and consumer services, especially hotels, restaurants and leisure. "In the worst case, entire industries could be destroyed. The detrimental effects will likely be more acute in some regions than others," the report said.

"Continued dislocation in financial markets beyond a month or two could create its own self-fulfilling downward spiral. A sharp rise in defaults could also put pressure on bank balance sheets. Additionally, fiscal stimulus measures, which will support growth, will also lead to further increases in sovereign debt levels, which are already high in many countries," Moody's said.